Lloyds Banking Group and Royal Bank of Scotland (RBS) are to get another $US50 billion of British taxpayers' money.
In a deal aimed at appeasing European competition authorities, the UK's two largest mortgage lenders have agreed to sell hundreds of branches, accounting for about 10 percent of the retail market.
Treasury Minister, Paul Myners said the measures represented the third and final stage of returning the two bailed-out institutions to health.
"As a result of what we've announced today, both Lloyds and Royal Bank of Scotland are amongst the strongest capitalised banks in the world. They are there to support the needs of British customers; but also, very importantly, we've got a great deal for the British taxpayer, says Myners.
Lloyds is planning to raise more than $US34 billion - including a record $US22 billion rights issue - dropping out of the Government's bad loan bailout scheme.
The move - ending months of uncertainty - enables Lloyds to retain its financial independence.
That leaves RBS, which is 70 percent-state owned, as the only bank joining the scheme, albeit on revised terms - the announcement coming hours after RBS said it was axing nearly 4,000 frontline jobs.
Reuters